Correlation Between Universal Insurance and Cincinnati Financial

Can any of the company-specific risk be diversified away by investing in both Universal Insurance and Cincinnati Financial at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Universal Insurance and Cincinnati Financial into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Universal Insurance Holdings and Cincinnati Financial, you can compare the effects of market volatilities on Universal Insurance and Cincinnati Financial and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Universal Insurance with a short position of Cincinnati Financial. Check out your portfolio center. Please also check ongoing floating volatility patterns of Universal Insurance and Cincinnati Financial.

Diversification Opportunities for Universal Insurance and Cincinnati Financial

0.93

Correlation Coefficient

Universal Insurance  Cincinnati Financial

Almost no diversification

The 3 months correlation between Universal and Cincinnati is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding Universal Insurance Holdings and Cincinnati Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cincinnati Financial and Universal Insurance is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Universal Insurance Holdings are associated (or correlated) with Cincinnati Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cincinnati Financial has no effect on the direction of Universal Insurance i.e., Universal Insurance and Cincinnati Financial go up and down completely randomly.

Pair Corralation between Universal Insurance and Cincinnati Financial

Considering the 90-day investment horizon Universal Insurance Holdings is expected to generate 1.0 times more return on investment than Cincinnati Financial. However, Universal Insurance Holdings is 1.0 times less risky than Cincinnati Financial. It trades about -0.02 of its potential returns per unit of risk. Cincinnati Financial is currently generating about -0.05 per unit of risk. If you would invest  1,986  in Universal Insurance Holdings on October 26, 2024 and sell it today you would lose (55.00) from holding Universal Insurance Holdings or give up 2.77% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	100.0%
Values	Daily Returns

Universal Insurance Holdings  vs.  Cincinnati Financial

Universal Insurance

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Universal Insurance Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, Universal Insurance is not utilizing all of its potentials. The recent stock price tumult, may contribute to shorter-term losses for the shareholders.

Cincinnati Financial

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Cincinnati Financial has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Cincinnati Financial is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Universal Insurance and Cincinnati Financial

The main advantage of trading using opposite Universal Insurance and Cincinnati Financial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Universal Insurance position performs unexpectedly, Cincinnati Financial can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Cincinnati Financial will offset losses from the drop in Cincinnati Financial's long position.

The idea behind Universal Insurance Holdings and Cincinnati Financial pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

Check out your portfolio center.

Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Global Correlations module to find global opportunities by holding instruments from different markets.